A recipe for rising health premiums

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One could be excused for thinking the latest news on private
health insurance is unambiguously good if one goes by the public
reactions of federal Health Minister Tony Abbott and industry
representatives. Mr Abbott hailed a rise in health fund membership
to a record 10.03 million people with hospital and/or ancillary
cover. He said this was driven by the decision to increase the
private health rebate from 30 to 40 per cent for people aged over
70 and from 30 to 35 per cent for those over 65. The Australian
Private Hospitals Association welcomed the figures as evidence the
policies were working. We wonder whether they are also celebrating
in private, for the simple reason that the new members are in an
age group that represents a net cost for the industry. In the three
months to March, funds signed up 24,000 more people aged 55 and
over - the point at which they cost funds more in benefits than
they pay in premiums - but lost 21,000 younger members, who
cross-subsidise older members.

The disparity in age-group trends was the reason The Age
questioned the policy sense (we understood the political motive) of
the pre-election pitch to over-65s. In the case of Medicare, its
universality creates the broadest, fairest cross-subsidisation of
costs. The problem for private insurance is that, being
non-compulsory, people do their sums on the basis of individual
benefit. Should they opt in, they naturally seek to get back any
benefit they can. This is a factor in inflating private health
costs, which are generally higher per procedure than in the public
sector. Average premium increases of 7.5 per cent in the past four
years are a strong disincentive to healthy young people for whom
the ills of old age (much like saving for retirement) seem a remote
concern.

Expect such premium increases to continue, as the private funds
paid $5.6 billion in hospital benefits in the year to March 2005,
an 8.2 per cent increase. Claims that this has eased pressure on
public hospitals do not tally with the public sector's own
experience. The private health rebate also means an ever-increasing
uncapped cost, approaching $3 billion, is borne by the Government
each year. Yet its policies ignore, in fact encourage, lopsided
fund memberships and expose all taxpayers to the costs, regardless
of whether they enjoy the benefits of private health insurance.
Even if this inequity does not trouble the Government,
affordability should be enough of a concern for it to go past the
headline figures and look more closely at the impact of its
policies.